Macroeconomic Stability and The Foreign Direct Investment in Tanzania
DOI:
https://doi.org/10.26437/ajar.v11i1.884Keywords:
Exchange rate. foreign direct investment. inflation. macroeconomic. stability. trade openness.Abstract
Purpose: This study examined the relationship between FDI inflows and key macroeconomic indicators in Tanzania, including inflation, exchange rate, and trade openness.
Design/Methodology/Approach: The study utilises time series data covering 50 years from 1970 to 2019. In the analysis, the key diagnostic tests such as the Augmented Dickey-Fuller (ADF) test and the Philip Peron (PP) tests for unit root/stationarity and the Johansen cointegration test to test for the long-run relationship between the variables were conducted before the primary analysis. The results of the diagnostic tests led the study into the Vector Error Correction Model (VECM), which estimates the relationship between the dependent and independent variables after discovering a long-run relationship among or between the variables.
Findings: The VECM results showed that FDI is significantly determined by its lagged (Previous years) values and exchange rate in the short run. The results also showed a significant long-run relationship between exchange rate and FDI inflows, with other factors remaining constant. These results were consistent with prior assumptions and other findings from the literature.
Research Limitation: The study considered FDI inflows in aggregate. This may have limited the analysis and discussions on the impact of the macroeconomic indicators on the general level of FDIs.
Practical Implication: The study recommends that the country continue to promote FDI inflows while stabilising its exchange rate. The two will lead to more FDI inflows and good macroeconomic performance.
Social Implication: These social implications demonstrate how exchange rate stability and FDI influence extend beyond pure economics to affect various aspects of Tanzanian society and community development.
Originality/ Value: The paper's novelty lies in the improved understanding of variable interdependencies.
References
Asiedu, E. (2002). ‘On the determinants of foreign direct investment developing counties: Is Africa different?’ World Development, Vol. 30 (1), 107–119.
Azam, M. (2010). Economic Determinants of Foreign Direct Investment in Armenia, Kyrgyz Republic and Turkmenistan: Theory and Evidence. Eurasian Journal of Business and Economics 2010, 3 (6), 27–40.
Bacovic, M., Jacimovic, D., Lipovina Bozovic, M., & Ivanovic, M. (2021). The Balkan paradox: are wages and labour productivity significant determinants of FDI inflows?. Journal of Balkan and Near Eastern Studies, 23(1), 144-162.
Boros-Torstila, J. (1999). ‘The determinants of foreign direct investment operations of Finnish MNCs in transition economies’, Helsinki: ETLA, The Research Institute of Finnish Economy, A 28 Series.
Dadush, U., Dasgupta, D., & Ratha, D. (2000). The role of short-term debt in recent crises. Finance and Development, 37(4), 54-60.
Durán, J. E. (1999) ‘Los determinantes de la ied en los países de américalatina y el caribe: suimpactosobre el comercio y la integración regional’, ECLAC, Mimeo.
Johansen, S. (2000). Modelling of cointegration in the vector autoregressive model. Economic modelling, 17(3), 359-373.
Johansen, S., & Juselius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration - With applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2).
Kumar, N. (1994). ‘Multinational Enterprises and Industrial Organization’, Sage Publications, New Delhi.
Lankes, H. P. & Venables, A. J. (1996). ‘Foreign Direct Investment in Economic Transition: The Changing Pattern of Investments’, Economics of Transition, Vol.4, pp.331-347.
Nonnenberg, M. J. B., & Mendonca, M. J. C. (2004). The determinants of direct foreign investment in developing countries. Available at SSRN 525462.
Nunes, C.L., Oscategui. J. & Peschiera. J. (2006) ‘Determinants of FDI in Latin America’, Documento De Trabajo 252.
Pantelidis, T & Nikolopoulos, E. (2008). “FDI Attractiveness in Greece”, International Advanced Economic Research (2008) 14:90–100 DOI 10.1007
Rusike, T. G. (2007). Trends and determinants of inward foreign direct investment to South Africa (Doctoral dissertation, Rhodes University).eprints.ru.ac.za/1124/01/rusike-mcom.pdf.
Sahoo, P. (2006). ‘Foreign Direct Investment in South Asia: Policy, Trends, Impact and Determinants’, ADB Institute Discussion paper No. 56
Vijayakumar, N., Sridharan, P., & Rao, K. C. S. (2010). Determinants of FDI in BRICS Countries: A panel analysis. International Journal of Business Science & Applied Management (IJBSAM), 5(3), 1-13.
Wafure, O. G., & Nurudeen, A. (2010). Determinants of foreign direct investment in Nigeria: An empirical analysis. Global journal of human social science, 10(1), 26-34.
Wang, R., Usman, M., Radulescu, M., Cifuentes-Faura, J., & Balsalobre-Lorente, D. (2023). Achieving ecological sustainability through technological innovations, financial development, foreign direct investment, and energy consumption in developing European countries. Gondwana Research, 119, 138-152.
Wheeler, D. and Mody, A. (1992) ‘International investment location decisions: the case of US firms’, Journal of International Economics, Vol.33, pp.57-76
Zou, Y. (2022). Capital switching, spatial fix, and the paradigm shifts of China’s urbanization.
Urban Geography, 43(10), 1662-1682.
Downloads
Published
How to Cite
Issue
Section
Categories
License
Copyright (c) 2025 AFRICAN JOURNAL OF APPLIED RESEARCH
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
By submitting and publishing your articles in the African Journal of Applied Research, you agree to transfer the copyright of the Article from the authors to the Journal ( African Journal of Applied Research).
